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The financial statements of Star Corporation appear below: Star Corporation Comparative Balance Sheets December 31, 2018...

The financial statements of Star Corporation appear below:

Star Corporation

Comparative Balance Sheets

December 31, 2018 - 19

——————————————————————————————————

Assets                                                                         2019                 2018                                                                                                

Cash                                                                       $ 50,000          $ 100,000

Short-term investments                                             50,000             150,000

Accounts receivable (net)                                       100,000               75,000

Inventory                                                                150,000             175,000

Property, plant and equipment (net)                       650,000             750,000

            Total assets                                               $1,000,000      $1,250,000

Liabilities and stockholders' equity

Accounts payable                                                   $ 50,000            $ 75,000

Short-term notes payable                                        100,000             225,000

Bonds payable                                                                    200,000             400,000

Common stock                                                        375,000             375,000

Retained earnings                                                  275,000             175,000

Total liabilities and stockholders' equity           $1,000,000         $1,250,000

Star Corporation

Income Statement

For the Year Ended December 31, 2019

Net sales                                                                   $1,000,000

Cost of goods sold                                                       625,000

Gross profit                                                                  375,000

Expenses

            Operating expenses               $105,000

            Interest expense                      45,000

                        Total expenses                                     150,000

Income before income taxes                                       225,000

Income tax expense                                                      67,500

Net income                                                               $ 157,500

Required:

(a) Using the financial statements, compute the following ratios for Star Corporation for 2019. Show all computations.                                                                      

1. Current ratio.                                                          

2. Acid-test ratio.

3. Accounts receivable turnover.                               

4. Inventory turnover.

5. Profit margin.                                                         

6. Return on assets.

7. Assets turnover.                                                     

8. Times interest earned.

9. Working capital.

10. Debt to assets ratio.

(b) Prepare a vertical analysis of the 2019 income statement data for Star Corporation.

                                                                                                                                          

(c) Based on the ratios calculated in (a), and the vertical analysis in (b), discuss briefly the improvement or lack thereof in financial position and operating results from 2018 to 2019 of Star Corporation.                                                                                       

Solutions

Expert Solution

ekkarill92 answered 1 year ago
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